G-7 Nations Pledge To Avoid Currency War
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Finance Ministers and central bank governors from the Group of Seven industrial nations (G-7) on Tuesday vowed to allow foreign exchange markets to determine the value of their currencies, in a statement seen as an attempt to defuse speculation of a potential ‘currency war’.
The G-7, which counts the U.S., Japan, Canada, France, Italy, the U.K. and Germany as its members, said that “excessive volatility” in exchange markets undermined stability; reaffirming their commitment that central-bank policy should focus solely on domestic objectives.
Finance Ministers and central bank governors from the Group of Seven industrial nations (G-7) on Tuesday vowed to allow foreign exchange markets to determine the value of their currencies, in a statement seen as an attempt to defuse speculation of a potential ‘currency war’.
The G-7, which counts the U.S., Japan, Canada, France, Italy, the U.K. and Germany as its members, said that “excessive volatility” in exchange markets undermined stability; reaffirming their commitment that central-bank policy should focus solely on domestic objectives.
Although there have been growing concern that countries might manipulate their exchange rates through their domestic economic policies in order to gain a currency advantage, the G-7 further committed to consult each other closely on exchange markets and “cooperate as appropriate.”
“We, the G7 ministers and governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets,” they said in a brief collective statement, cited by AFP.
[quote]”We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.”[/quote]Related: Will 2013 Mark The Start Of A New, More Dangerous Currency War?: Mohamed El-Erian
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The statement, in particular, brought some relief to Japan, whose policy makers have come under fire recently, for allegedly using monetary policies to down the value of the yen.
“The criticism that (the government) is manipulating the currency rate is completely off the mark,” said finance minister Taro Aso to a press meeting in Tokyo.
[quote]The statement “properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets,” he added, according to the New York Times.[/quote]But a later report from Reuters, citing an unnamed G-7 official, suggested that the statement may have actually been a thinly veiled warning to Japan about excessive moves in the yen.
The markets had gotten the message wrong, told the G-7 official to Reuters. “The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend,” the official added.
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Much of the recent volatility in foreign exchange markets has been the result of developments affecting the Japanese yen, which dropped Tuesday to its lowest level against the dollar since May 2010. Though the Japanese government is directly intervening in the exchange market, it has introduced a series of economic policies, such as setting a 2 percent inflation target, which many believe will lead to more money being created.
Internationally however, many world leaders have attempted to downplay the talk of a looming currency war.
“I think the term ‘currency wars’ is way, way over done,” said ECB President Mario Draghi on Tuesday. “We are not witnessing anything like that.”
[quote]“This increasing talk of currency wars is very much overblown,” added IMF Chief Economist Olivier Blanchard in January. “Countries have to take the right measures to get their own economies back to health.”[/quote]
